|
Market Comment
Mortgage bond prices finished the week higher which helped mortgage interest rates fall. Rates experienced some very large swings throughout the course of the week. There were improvements Monday. Higher than expected retail sales data Tuesday morning tempered the earlier gains. Higher than expected producer price index data Wednesday pushed rates higher midweek. PPI rose 0.4% versus the expected 0.3% increase. The core, which excludes volatile food and energy prices, rose 0.3% versus the expected 0.1% increase. Tame core consumer price index data released Thursday reversed the earlier losses. CPI rose 0.3% as expected and the core rose 0.1% versus the expected 0.2% increase. Mortgage interest rates finished the week better by approximately 3/8 of a discount point despite the extreme volatility.
LOOKING AHEAD
|
Economic
Indicator
|
Release
Date & Time
|
Consensus
Estimate
|
Analysis
|
| Martin Luther King Jr. Holiday |
Monday, Jan. 20 |
|
Important. Extended weekend may result in volatility Tuesday morning when trading resumes. |
| Weekly Jobless Claims |
Thursday, Jan. 23,
8:30 am, et
|
332k |
Important. An indication of employment. Higher claims may result in lower rates. |
| Existing Home Sales |
Thursday, Jan. 23,
10:00 am, et
|
4.87m |
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| Leading Economic Indicators |
Thursday, Jan. 23,
10:00 am, et
|
Up 0.4% |
Important. An indication of future economic activity. Weakness may lead to lower rates. |
| 10-year Treasury TIPS Auction |
Thursday, Jan. 23,
1:15 pm, et
|
None |
Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates. |
Leading Economic Indicators
The index of leading economic indicators (LEI) is a weighted average of eleven economic variables that “lead” the business cycle. It is constructed for forecasting future aggregate economic activity. The eleven variables that make up the LEI measure workers’ hours, initial unemployment claims, new factory orders, vendor performance, contracts and orders for plant and equipment, new housing permits, changes in unfilled orders, prices of raw materials, stock prices, money supply and consumer expectations.
Each of the variables that comprise the index has a tendency to predict (or lead) economic activity. For example, new orders for manufactured goods, new orders for plant and equipment, and new building permits are all direct measures of the amount of future production being planned for the economy.
Analysts monitor the LEI in an effort to predict future economic growth. When the LEI report is up, mortgage market participants expect credit demand to increase and inflationary pressures to build. Thus, when the LEI report is rising, interest rates tend to rise as well. The LEI report is a valuable forecasting device that often correctly predicts economic turning points. The percentage change in the LEI is reported monthly and is an indication of the activity that will occur within the next three to six months. The LEI tends to turn down before peaks in the business cycle. Continuous declines are generally accepted as evidence that a recession continues.
Nine of the eleven components that make up this index are known before the release of the report, so the index is easier for economists to predict than other data releases. Thus, although this is important predictive data for market participants, major surprises are not common with the release of this data. However, when the actual release doesn’t match expectations investor reactions are often heightened and mortgage interest rates can be volatile as a result.
|
Comments(0)